Are they linked with efficiency?
With most trusts breaking even or making a surplus in 2006/07, the position was much better than in 2005/06. But are any patterns emerging?
As in previous years, it's clear that mental health trusts are under-represented in the deficit group. As we discussed in our report on financial management in mental health, they do seem to find it easier than acute trusts to keep within their available resources. It's also clear that trusts in deficit tend to miss break-even by a larger margin than the margin by which those in surplus exceed it.
But now that Payment by Results (PbR) has had time to bed down, a trust's financial out-turn ought to be determined, at least in part, by its efficiency. More efficient trusts should tend to be the ones in surplus. Are they?
Not yet. The steeply descending line on the chart opposite is not a line of best fit, but one drawn in to show where the trusts would lie if financial out-turn was determined solely by trust efficiency. In fact, efficiency is hardly a factor at all. How can that be?
Yearly fluctuations in financial out-turn don't seem to be the cause: three-year cumulative figures produce a very similar-looking chart. As for the Reference Cost Index (RCI) efficiency measure, there are always doubts over its accuracy, but with 86 per cent of hospital costs now included, and given the existence of more subtle relationships between it and other independently calculated indicators, that also seems an unlikely candidate.
Transitional arrangements (relief or clawback) are intended to smooth the introduction of PbR. Interestingly, non-PbR income (including other payments comprising over a third of some trusts' income) has a noticeable effect on the RCI: those trusts with more income from these non-PbR sources have higher reference costs.
Specialist work not completely accounted for in RCI calculations may account for some of the observed relationship. But it is clear that the transitional arrangements, together with other non-PbR income, are having a substantial effect on financial balance. As the transitional arrangements come to an end next year, and as PCTs begin to compare notes on what they are getting for their money outside of PbR, inefficient trusts will have no alternative but to raise their game or face deficits.